[00:00:14] David Hornik
Hello and welcome to VentureCast. This is David Hornik from August Capital.

[00:00:18] Howard Hartenbaum
And this is Howard Hartenbaum, also from August Capital.

[00:00:22] David Hornik
And I hope that you listened to our last VentureCast where we had a major technical failure which we only realized. So by the way, what you don’t know is that was the second one that we had this major technical failure because two podcasts ago we recorded the whole thing. We then finished up, then we looked down and saw that it wasn’t recording and said, oh my God, I can’t believe it. We should have switched the batteries.

[00:00:49] Howard Hartenbaum
And then I do recall before that one started, I said, did we switch the batteries? And you said, they’re good enough.

[00:00:55] David Hornik
That’s. I said, like, what could have happened? We only use them on one Venture cast, which goes to show have if you’ve ever done any professional production or whatever, and they have these wireless microphones at every break, they switch the batteries. They don’t care if it looks full, whatever. There’s. Nope, switch the battery. Batteries are cheap. Your time is not cheap. And that was a perfect example because we had, you know, like an hour of brilliance and it was just wasted.

[00:01:21] Howard Hartenbaum
And then the second podcast, we were so frustrated, we did it again and everything seemed to be going great. And right near the very end, you look down and I remember the expletives that you yelled.

[00:01:33] David Hornik
It was unbelievable to me because we did switch the batteries. So now I’m certain that it’s actually an equipment failure, not just a battery failure. Right, because that doesn’t make any sense.

[00:01:43] Howard Hartenbaum
And what did you do to fix this? There was a gap near the end. And what did Craig do?

[00:01:48] David Hornik
He just put in some filler. The filler. Filler.

[00:01:52] Howard Hartenbaum
Elevator music.

[00:01:52] David Hornik
Music. And then we had our finale. So. So then, so in reaction to that, I said, all right, we gotta fix this. I went on. These are from massdrop. I went on massdrop, I bought two great new microphones and I was all set gonna use them, plug them into a laptop, but I forgot a laptop. Then I was searching around our office and like backup laptops have some kind of password that I don’t know what it is that didn’t work.

[00:02:16] Howard Hartenbaum
And then our semi defective recording equipment seems to have disappeared.

[00:02:20] David Hornik
Yeah, we were going to go back to the defective version, but I don’t know where it went. And Howard speculates that I threw it in the trash, which is certainly possible.

[00:02:29] Howard Hartenbaum
So in order to save money, you took your phone out of your pocket and you turned on voice memo. And today we’re on iPhone. Voice Memo.

[00:02:35] David Hornik
And the thing that I think is most ridiculous is it probably sounds about as good as when we were using a high quality microphone into a digital voice recorder. So anyway, we’ll see, we’ll see what you think of this. We’re only one source, so Craig can’t fix. Craig Syverson is the master of making us, attempting to make us sound reasonable. Only Howard’s voice always sounds reasonable. So he’s really just trying to fix my voice. Yeah, screw you, Howard.

[00:03:03] Howard Hartenbaum
After, after that, and I watched the video Craig sent us. Craig owned a condo or co op condo in New York City. And a year or so ago, the construction workers broke a water pipe for the fire suppression system on like the fifth floor of the building and literally destroyed the entire building. Every floor.

[00:03:25] David Hornik
It did. It was like. It was like a waterfall came down into the entire building, ending in Craig’s apartment, which was the first floor in the basement, destroying the apartment.

[00:03:35] Howard Hartenbaum
He showed the video and he had these buckets filled with water and bathtub like everything, water everywhere. And he said, then the fire department came in, said, you better get out fast before the ceiling collapses. So he did, and. And the ceiling collapsed.

[00:03:48] David Hornik
That’s. That’s good. Fire.

[00:03:50] Howard Hartenbaum
Water damage.

[00:03:51] David Hornik
Yeah. Anyway, Howard and I just were looking at a water damage startup. The thing that’s fun about the venture business is you never know what you’re going to look at. Right. So today it was a very scientific meeting about some medical stuff. Then we had a water damage thing and then we had a pitch about acquiring homes, real estate business. And they were all interesting. They were all. They, they were. Each one was really good entrepreneurs for different reasons. Different. You know, some were young, some were older. PhDs. No PhDs, male, female, but all really good. Each of those businesses has the capacity, the possibility of being a really big and interesting business.

[00:04:35] Howard Hartenbaum
So we’re going to fund them all. No, but are we gonna find any of them?

[00:04:39] David Hornik
I don’t know.

[00:04:40] Howard Hartenbaum
I don’t know.

[00:04:41] David Hornik
But yeah, so we did water suppression. But anyway, so it’ll be interesting to see how this iPhone business works. I know that this iPhone memo stuff works pretty well because my son Julian, who is a composer, when he’s trying to just save ideas or whatever, he just uses these memos and they, they capture everything. It’s amazing. It’s a pretty high quality microphone. Hopefully I’ll have enough memory here.

[00:05:08] Howard Hartenbaum
Yep, we’ll find out.

[00:05:10] David Hornik
I guess.

[00:05:14] Howard Hartenbaum
I’m going to go back really quickly to the water company because. So what this company does is it figures out if you have any leaks on your property, at your house or your apartment. And whether it’s a slow leak or a sudden leak, and we all have insurance against water damage and homeowners or renters policies. But what you don’t realize is that if it’s not a sudden burst, it’s not covered. Like if you have a slow leak that’s leaking into your basement for six or eight months and you get the black mold growing in your basement, which is infinitely expensive, hundreds of thousands of dollars to fix, like your insurance won’t cover that. And if you were to catch that with a water leak system, you could have a healthier, safer house or whatever. But if you go back 10 years, nobody gave a crap about water. Water was free, it came through the pipes, you’d leave it running when you brushed your teeth. Everybody had pools without covers on them. And now from a timing perspective, we just had the worst drought ever. And a company was formed out of interest in water conservation because of the drought. And they got into things like insurance related damage and mold and all sorts of stuff. And it got us talking about how with companies, timing can be everything. And that company wouldn’t have succeeded at all if it started 10 years ago. Nor would it succeed probably if it started in five years. Like now is the time.

[00:06:42] David Hornik
Yeah. No, even if they were to think about a problem today, they wouldn’t say like, oh, let’s figure out about how to manage water. Right. We don’t want to waste water because water is precious right now. I was just actually I went out to dinner with Orin Jacob, who runs this great company called Polstering. And Oren was an EIR with us for a bunch of time and Orin is a big skier and he said, I said, are you still skiing? What’s happening? And he said that they’re for sure keeping Squaw Valley open through the 4th of July and they are going to try and keep it open through to the next season. That is how much base they have. There’s still what, 25ft of base in May, and that they’re going to try and keep it. Meanwhile, it’s, it is melting and as it melts it’s creating so the Truckee river, which for a while was kind of a river and for a long time has been a drip, drip, dribble, is now a rushing river. It’s like taking over streets. Etc. Apparently Yosemite is amazing. Remember we were just there, what, like six months ago, nine months ago, and it was, there was nothing coming over the Falls, the. You can’t climb the sides now because it is such a torrent of water. It’s unbelievable. Anyway, I digress. So it is.

[00:08:01] Howard Hartenbaum
I think they said that the snowpack was double the norm.

[00:08:04] David Hornik
Yeah. Which is insane.

[00:08:05] Howard Hartenbaum
And when it’s one times the norm, snow makes it through the whole summer. Not everywhere, but at the higher altitudes. So I think I’ll go skiing this weekend.

[00:08:13] David Hornik
Yeah, you totally should. Apparently it’s good and it’s supposed to be really great skiing. So the other thing is, and this is important, very important lesson about venture funds. So every so often we as a partnership go on a, on a, on a trip of some sort, which we call a partner off site boondock. And we often go skiing, but we’ve decided, oh, we should do other things to get, you know, look, in defense of this partner off site thing, we have a lot of downtime where we get to talk about how about our portfolio and how we can help each other and how we’re thinking about the markets and all these things.

[00:08:48] Howard Hartenbaum
We pay for it ourselves.

[00:08:50] David Hornik
Yeah, we pay. We pay out of the operating budget. We go. And so, so we had signed up and put money down on a river rafting trip that we were going to do as our partner off site in the spring. Oh, no. We had to, we had to push that out. We would die. There’s like.

[00:09:08] Howard Hartenbaum
Did the, did the company cancel everything?

[00:09:11] David Hornik
I think we. No, we just said we’ll do it at another time. So we’re gonna. So maybe next spring. Maybe next spring it won’t be so dangerous. But like everything is a level, whatever rapid. It’s like, it’s madness right now. We couldn’t, we couldn’t. There’s no amount of downstream we could go that would make it safer.

[00:09:26] Howard Hartenbaum
I think it would be safer because there’s so much water. It’s covering all the boulders.

[00:09:31] David Hornik
Yes, but it’s moving very quickly.

[00:09:33] Howard Hartenbaum
But it’s just moving quickly.

[00:09:35] David Hornik
But what if it slams you into something quickly? I don’t think you understand water anyway.

[00:09:41] Howard Hartenbaum
Back to a point in time.

[00:09:42] David Hornik
Oh, yeah.

[00:09:43] Howard Hartenbaum
So companies have to get timing right in what they’re doing. And if they’re too early, they’re not going to make it. And if they’re too late, they’re not going to make it. So timing has to be everything. I think the example you gave was Airbnb.

[00:09:57] David Hornik
Well, you and I were talking, so, you know, my favorite analogy for this is surfing. Right. And I’m not a surfer, but I’ve watched surfing. And so if you’re too early to a wave, then the wave crashes on your head and you’re doomed. And if you’re too late to the wave, all of the power of that wave has already rushed off and taken some other surfer to have this magnificent ride. And you’re sitting there barely moving. You go, oh, man. And so you. You’d certainly, in some ways, you’d rather be late than early. You don’t get the thing crashing on your head, but either one is not a good outcome. And so you really have to get the wave, the power of the thing. And so you and I were chatting. We were talking about the fact that in some ways, the timing of Airbnb was perfect, because basically, when they were getting ready to ramp up was what, 2008?

[00:10:44] Howard Hartenbaum
Yeah. Nine, ten.

[00:10:45] David Hornik
Right? It was. The economy was under pressure. Travelers were under pressure. It was this tricky time.

[00:10:52] Howard Hartenbaum
People were worried about losing their homes. They couldn’t afford hotels. Like, everything was wrong.

[00:10:57] David Hornik
So it’s the thing that’s amazing about it, is that downturn. Downturn solved both the supply and the demand problem. It’s the demand problem where people are like, oh, if I could stay in a room or rent an apartment more cheaply than going to the Holiday Inn or whatever, I will do that, because we can’t afford to do this with business travel or whatever. And then from a. From a supply standpoint, there were all these people who are trying to make ends meet, and they could then rent out one of their rooms, or they could move into a smaller place and rent out their. Their apartment or whatever. And so, because it was a challenging time, it increased supply and demand, and more importantly, it allowed people to try it out and say, oh, this thing’s actually not crazy. Whereas I think if you did it today, there. There’d be a lot of people would be sort of like, nah, why would I do that? I’ll just stay at the Sheraton, you know? And I don’t think people would let their houses be used because they’d be like, no, you’re gonna wreck my house. Like, forget it. Why would I do that? Right? So it. Look, Airbnb is amazing, but it is a it. When you think about it, it was really at just the right point in time that it. That it managed to make that work and that.

[00:12:03] Howard Hartenbaum
And there were some other companies, like couch surfing, for example, which just didn’t quite capture it. And that was a little bit earlier than Airbnb, I think.

[00:12:12] David Hornik
Yeah, it was. It came in earlier. People were using it. It was sort of a non Profit or it was a free system and then it got funded by Benchmark and they were going to turn it into a for profit when they saw what was sort of starting to happen at Airbnb. And Airbnb grabbed all of the momentum of the wave and couch surfing was simultaneously too early and then too late, you know?

[00:12:34] Howard Hartenbaum
Yep.

[00:12:34] David Hornik
That’s kind of crazy. I think about Splunk the same way. Right. Ultimately, when we invested in Splunk, there was no such thing as big data. There was just a bunch of data. And the Splunk guys didn’t think they were creating a search engine for big data. They. They said, wouldn’t it be great if you could search log files? You know, I was like, yeah, that’d be amazing. And by the time the company went public, it was, oh, this is a search engine for machine data. And it’s the poster child for big data. And it’s going to change the way people think about data. And so I think, again, similarly, if you were a little earlier, there was no such thing. If you were later, then you were a follow on to an already existing trend.

[00:13:14] Howard Hartenbaum
I mean, I can give you an example of way too early where I invested in a company called Kyte K Y T E run by Daniel Graff. And this was before the iPhone came out and they were figuring how to do live streaming video on smartphones before the iPhone. And basically the only phone that could handle it was the Nokia N95, which was like a 5 or $600 phone, which was ridiculously expensive at the time. And our thought was we had timing, right, and within a year or two, the phones would be much cheaper. And the company raised money and raised some more money and just it was too early and ended up having to switch into an enterprise business, which ultimately sold off. And then the iPhone came out and now what do you got? You know, Twitter does their form of video and you’ve got Snapchat now. And it all has to do with bandwidth cost and people’s connectivity to, you know, WI fi. Like, Kite hit it on the head like seven or eight years too early.

[00:14:13] David Hornik
Yeah, no, it’s amazing. That stuff’s amazing. Where’s Daniel now? Is he running product at Uber or at Twitter?

[00:14:19] Howard Hartenbaum
I think he’s. So he went to Google Maps and then he was at Twitter for a little bit and now he’s at Uber.

[00:14:27] David Hornik
Yeah, I think he’s running product at Uber or something. Something. Something big.

[00:14:31] Howard Hartenbaum
So unless he left, unless he got in, unless he got in the scandal, I don’t know.

[00:14:35] David Hornik
We’re not saying anything. We just think it’s possible there’s been attrition. That’s all we’re saying. We’re not so, by the way, so I had this big question. So one of my kids this summer is going to an art program at ucla. And it’s this two week program, and it turns out there’s no dorms. I don’t know why you have a two week program at a UCLA and you don’t have dorms, but, you know, that’s how it goes. And so he’s going with his buddy, and so his parents and Pamela and I said, okay, we’ll rent an apartment for a couple weeks and then we’ll rent a car and we’ll do this. So we went to Airbnb. We got an apartment a block from ucla. So that’s awesome. Not cheap, by the way. It’s not like, oh, get that. This two bedroom apartment will be like 60 bucks a night.

[00:15:22] Howard Hartenbaum
I don’t know, 300 a night.

[00:15:23] David Hornik
It was like 320. No, it came out with taxes and fees and all that stuff to like 320 or something bucks a night, which is a lot over two weeks. And then we went, okay, I’m going to rent a car. And we had this back and forth. Should we rent a car or should we just use, you know, Lyft while we’re in town?

[00:15:41] Howard Hartenbaum
Or Uber.

[00:15:42] David Hornik
Or Uber, but you could use Lyft there. This. They are, by the way, pretty much the same. And so we had this back and forth, and my wife basically was like, no, that’s a crazy idea. Whatever. And then it turns out that Beckett’s friends. Mom needed to get around and would need to go further distances anyway, so we said, all right, we’re gonna rent a car. So we, you and I, although you, you, Howard, funded this company, Toro, which is. We collectively did. You’re sitting on the board and it’s a car sharing site. And so it’s the same. It’s like, you know, it’s Airbnb for cars. And so I went on there and I said, all right, I need a car for two weeks. And I was able to find a 2015 Prius with 20,000 miles on it. So pretty new Prius for 30 bucks a day. 30 bucks. It came like. So I said, all right, I’m gonna do a gut check here and make sure. So I went to Hertz and I said, what would it, you know, these two weeks, how much it would cost? And they had a Yaris or something like Some really, like, even smaller. Even smaller. And. And it was more than double. I said no. So some dude named Eric is renting me his Prius. He got very good reviews. People like Eric.

[00:16:55] Howard Hartenbaum
You know, you’ll get reviewed, too. Oh, oh, you better return.

[00:16:57] David Hornik
And his. And his car is apparently a lovely car. And so now for these two weeks, we have an apartment, we have a car, we’re gonna drive around. What else?

[00:17:07] Howard Hartenbaum
I think, you know, it’s summertime now, and I always wanted to drive a Jeep Cherokee, so I rented a Jeep Cherokee.

[00:17:12] David Hornik
Oh, is that what you’re in right now?

[00:17:13] Howard Hartenbaum
Did you see it downstairs?

[00:17:14] David Hornik
No. You said that you were driving. I just thought, like, your car had broken down or something.

[00:17:17] Howard Hartenbaum
Well, my daughter crashed her car.

[00:17:19] David Hornik
Oh.

[00:17:20] Howard Hartenbaum
So she borrowed my car. And I always wanted to drive a Jeep Cherokee. 37 bucks a day.

[00:17:25] David Hornik
Is that like the topless kind or is that just.

[00:17:28] Howard Hartenbaum
It has a top, but you can take it off. I just. That’s too much trouble.

[00:17:31] David Hornik
Yeah, yeah, you could. I mean, actually, I was talking to Andre, who is the CEO of Turo, and I was saying, any strategies for me renting this car? And he’s like, well, what are you going to get? I hope you’re going to get something fun for the. For the kids. And I was like, no, I’m getting something cheap. He was like, oh, you should rent a Tesla or you should rent a Jeep or you should rent a Porsche or whatever. No, I think it Civic. I mean, the most extravagant I was willing to go is like a three seater, three three series BMW. And even that was like, no, I’m not gonna do that.

[00:18:02] Howard Hartenbaum
I rented a Prius about a year ago for a week.

[00:18:06] David Hornik
Yeah.

[00:18:06] Howard Hartenbaum
And after two days, I gave it back.

[00:18:08] David Hornik
Aren’t they horrible?

[00:18:09] Howard Hartenbaum
I gave it back. I couldn’t take it anymore.

[00:18:11] David Hornik
I hate the Prius.

[00:18:12] Howard Hartenbaum
Not only that, I paid the guy for the whole week. I felt so bad. I’m like, you know what? I hate this car. It’s just. It’s so cheap and slow.

[00:18:20] David Hornik
It’s awful. I totally agree with you. Even though I rented a Prius because it was cheap. My parents have a Prius. No, I was thinking I was gonna get Civic, but then I was like, oh, it gets good gas mileage and I’m just tooling around, you know, Westwood or wherever the heck it would be, and. But I hate the Prius so much. It has, like, no pickup. It feels. It drives terribly. I’m sorry. The Prius is horrible. No offense, Eric. I’m sure your Prius is lovely. It’s no worse than any other Prius. The problem is it’s a Prius.

[00:18:48] Howard Hartenbaum
What is it? Satish Dharmarash at Redpoint and he tricked out that Prius and put on gull wing doors onto a Prius.

[00:18:55] David Hornik
No.

[00:18:56] Howard Hartenbaum
I’ll pull up a picture for you while we talk. And you’ll see that’s the Prius.

[00:19:00] David Hornik
So if you’re listening to this, you may want to check out the. The gullwing doors Prius. Yeah, but. Yeah, I didn’t. I didn’t. I didn’t do that. Yeah, I’m sitting here by the way they. I was just sent this ball bearing and the reason I was sent this ball bearing is that I bought one of these spinners. Have you seen these spinners? Oh my God. That’s the most ridiculous thing I’ve ever seen.

[00:19:23] Howard Hartenbaum
It’s a picture of Satish’s car. It’s a Prius that he painted like electric orange and he put on gullwing doors on it.

[00:19:29] David Hornik
Yeah, the doors open up. It’s got balls.

[00:19:31] Howard Hartenbaum
So you can talk about your spinner now.

[00:19:32] David Hornik
I batwing tires. You got it? Yeah. Look, I suspect if you search Satish and. And Prius, you’ll find it in Google images. Yeah, so I. So I was on Mass drop. Oh, this is my second Mass Drop reference. Do we have any limits on how many of our portfolio companies we can.

[00:19:51] Howard Hartenbaum
Pitch in any given show the same company twice?

[00:19:54] David Hornik
So I was on massdrop and had this thing called a spinner. Have you seen these things? They’re. They’re called.

[00:20:00] Howard Hartenbaum
I saw an article in like USA Today. They are a big, big hit.

[00:20:04] David Hornik
Yeah, they’re huge.

[00:20:05] Howard Hartenbaum
You can buy them on Amazon in every color and the face of the.

[00:20:08] David Hornik
They’re everything. And so they’re basically sealed berries. They’re called fidget spinners and they’re for people like me who are add that to play with. Because ordinarily when we’re pit. When I’m being pitched or whatever, I play with my wedding ring. Every so often I drop it.

[00:20:23] Howard Hartenbaum
You should get one that’s got a bearing on it.

[00:20:24] David Hornik
That’d be so good. If it got sharp, it would cut my finger off. Be like a cheese cutter or something. But they just had a. They’re launching a brand new one, this triangular fidget spinner that is. That has been co designed by massdrop and this other company. And so I fear I’m gonna have to buy yet another.

[00:20:45] Howard Hartenbaum
I borrowed yours for a few minutes. I couldn’t get into it.

[00:20:48] David Hornik
Yeah.

[00:20:51] Howard Hartenbaum
You know, they spin the Pen around on. It’s sort of like that. Like, it’s not like it’s instant. You gotta practice it for a few minutes.

[00:20:58] David Hornik
Yeah, no, it is. And it was. I actually had to give it to my son because it was annoying my wife so much. She’s like, stop. You are a child.

[00:21:06] Howard Hartenbaum
Yeah. Hey, I had something I wanted to chat about. I had a company a few months ago where there was a handful of investors and we went to do a financing and all the investors like, oh, we love the company. We’re in for pro rata. And the CEO went out and got somebody to give him a term sheet and then came back and said to everybody, okay, here’s how much you’re probably pro rata is. And one of the guys like, yeah, I changed my mind.

[00:21:29] David Hornik
First of all, for the sake of the. Of those listeners who are not aware of the pro rata. So basically, how pro rata. That’s English.

[00:21:34] Howard Hartenbaum
Pro rata.

[00:21:35] David Hornik
Pro rata, your piece. I’m sure that means something else. Pro rata is when you buy. When you invest in a company and let’s say you buy 10% of the company and it comes with what’s called pro rata rights. And what that means is that you have the right to buy enough shares in a future financing to maintain your ownership in the company. Right. So if you have 10% of the company and they’re going out and raising another $10 million and it’s going to dilute the company by 10%, you can buy 10% of that offering to make sure that you still own 10% of the company. Right. So if you raise a bunch of money, oftentimes your pro rata comes out to be a lot of money. So one of the things that’s always interesting is, hey, we own 20% of a company, then they go and raise 50 or $100 million. If you raise $100 million, our pro rata is 20 million bucks. That’s a lot of dollars. And so. But now back to your point.

[00:22:33] Howard Hartenbaum
I’m just talking about people who say one thing and do another.

[00:22:36] David Hornik
Yeah, no, it is. So one of the.

[00:22:37] Howard Hartenbaum
I mean, break their word.

[00:22:39] David Hornik
Well, well, you know, you’re painting them as a. As nefarious. Is that your suggestion, Howard, that this. No.

[00:22:46] Howard Hartenbaum
And nefarious in the sense that if you aren’t going to do something, don’t say you will.

[00:22:49] David Hornik
I 100% agree with that.

[00:22:51] Howard Hartenbaum
Because if you’re not sure, don’t commit.

[00:22:53] David Hornik
Yeah. Then say, oh, we, we hope to, or I need to speak with My partners.

[00:22:57] Howard Hartenbaum
I’d like to maybe.

[00:22:59] David Hornik
Maybe we’ll do it. I always find it mystifying. And the reason it’s so bad is that the company is making plans based on what you tell them. Right? I mean, it’s one thing, okay, fine.

[00:23:11] Howard Hartenbaum
That’S half of it. The other half of it is the new investor can become suddenly very, very nervous and saying, wait a minute, you said your investor was going to put money in you and now he’s not. Why should I?

[00:23:22] David Hornik
No. 100%, absolutely. Like, oh, what? What happened?

[00:23:25] Howard Hartenbaum
What does he know?

[00:23:26] David Hornik
Right? What do they know that I don’t know. It’s actually a terrible board members really don’t have a lot they need to do.

[00:23:34] Howard Hartenbaum
They need to live by the word.

[00:23:36] David Hornik
But they need to. They need to say what they think they need to then. Then live by the things they say. I 100 agree with that. And when that’s not the case, they need to. And, and here’s the other thing. They need to be unendingly supportive of the company. Right. It’s amazing to me.

[00:23:55] Howard Hartenbaum
Don’t accuse me like that.

[00:23:57] David Hornik
Yeah. Stop being.

[00:23:59] Howard Hartenbaum
David is trying to give me a lecture.

[00:24:02] David Hornik
I was. Not to you. I once was on a board board where we had a brand new cfo, right? And new CFO companies doing pretty well. But the number, but it was early in revenue and so the numbers were kind of up in the air. And the new CFO comes in, gets introduced to the board, and one of the, one of my board members, fellow board members, starts, you know, beating up the new CFO about the numbers. Like, what about this then? How are you gonna do that? You know, like just very. And it was very, very aggressive. And I’m thinking, how is this helpful? Like, I don’t know what you’re. What are you trying to achieve? Right? What are you trying to achieve in this conversation? Do you think this complain. But this new guy, it wasn’t. He didn’t make the numbers. He wasn’t in charge. All it was doing was taking someone who just got to the company and making them feel like, gee, this is a mess. Don’t do that. That’s a bad plan. I don’t know.

[00:25:00] Howard Hartenbaum
I would never do that.

[00:25:01] David Hornik
No, we would never do. Howard and I would never do that. We don’t do that at August Capital. All we do is tell you how great you are and how you can be even better.

[00:25:12] Howard Hartenbaum
We try.

[00:25:13] David Hornik
We do try, actually.

[00:25:15] Howard Hartenbaum
Yeah.

[00:25:15] David Hornik
I was just@thebill.com off site.

[00:25:18] Howard Hartenbaum
Maybe your company’s off sites.

[00:25:20] David Hornik
Rene Lacert likes To have has these off sites where he brings the board. Rene is this entrepreneur. He was the founder of PayCycle, which I funded, and now he’s the founder of Bill.com, which I funded. And I was saying to Rene, because he does these off sites where you sort of, you know, it’s a day and a half. You come in the day before and you have dinner with the team and you get to know everybody, and then you spend the next day at the off site talking about the strategy for the year. I was saying, you know, Renee, you and I have been working together for 16 years, which means that your off sites have taken about a month and a half of my life.

[00:25:52] Howard Hartenbaum
And you want that time back.

[00:25:53] David Hornik
That’s a whole lot of off site. It’s a good thing. I love Rene, and his companies are great because otherwise I’d be like, oh, my God, not another off site.

[00:26:02] Howard Hartenbaum
You’re killing us. Like you. Because I don’t recall ever being invited to one of my company’s off sites.

[00:26:08] David Hornik
Oh, I’m sorry.

[00:26:09] Howard Hartenbaum
Do all of your companies have off sites? We know, like a venture firm.

[00:26:13] David Hornik
No. Yeah. No.

[00:26:14] Howard Hartenbaum
Where they go. Like they go skiing.

[00:26:16] David Hornik
We did fastly. We had a fastly born board off site where we went skiing with the team. And then we had a board meeting the next day up and up in Tahoe. We almost got snowed in. It was very ugly, but it was great. It was great to hang out and spend time with the team. Let’s see who else. Which other ones have off sites? Yeah, I have a few. You should either.

[00:26:38] Howard Hartenbaum
I really like those kinds of things.

[00:26:39] David Hornik
No, you have to talk to people and yeah, you know, you have to.

[00:26:42] Howard Hartenbaum
Hey, I want to go back to your comment about board members. What about independent board members? Have you seen any bad behaving or really good behaving independent board members? Or have you seen.

[00:26:55] David Hornik
Have you ever seen an independent board member? I guess again, this is the period of time when I explain.

[00:26:59] Howard Hartenbaum
So you realize, of course, I’m just doing this to make David teach us all.

[00:27:03] David Hornik
Yeah, exactly. Let’s talk about board. So when we invest in companies, there’s always a big question, right? This is a big question, is who will have the majority of the votes in a board? Right. So if there are two founders and they’re on the board, they’ll say, great, we, you can have one board seat, and then it’ll be our two votes against your one vote, and therefore we control the board. And you’ll say, well, no, I don’t know about that. That doesn’t seem like a great idea. And then. So then you say, well, what if we. What if you have two seats and I have two seats? And then. How about that? Now that’s a really bad idea because then you actually could have deadlock. It doesn’t make any sense. Right, because then if everybody’s voting against each other, you could just have no answer to a question. And the way you solve this is you say, let’s put an independent board member on the board. It’s not a founder, she’s not a venture capitalist, or in with you. She’s someone independent who has something to add, someone to create value. And that. That person then often is sort of the tiebreaker in. In the board. Right. So we’ve. You and I have done this all the time where we set up boards where we say, okay, fine, here’s the board. And then we’ll. We’ll bring in an independent board member and he or she will be, you know, agree, mutually agreeable. Everybody like that person. So what happens?

[00:28:24] Howard Hartenbaum
You can’t find that person. Nobody looks for that person.

[00:28:27] David Hornik
Nobody bothers. Because, you know, it’s like, oh, we get the financing done. I mean, I’m sure you’ve had this. Do you still have boards that like, that should have independents that haven’t been nominated?

[00:28:38] Howard Hartenbaum
I have one or two.

[00:28:39] David Hornik
I bet you I do. I bet you I have multiples.

[00:28:42] Howard Hartenbaum
I have. I want to go back and to your comment about two founders and one investor. I had that happen in a company where I love the founders and have a lot of respect for them. But six months after the financing, they decided to completely pivot the business into something that I was opposed to, which made for an uncomfortable situation between me and the founders because I explained to them I had seen competitive pitches. I was sure the business model didn’t work. I was okay that they wanted to pivot the business as long as it wasn’t into that. I said we’d be better off.

[00:29:17] David Hornik
Let’s try something else.

[00:29:18] Howard Hartenbaum
What we’ve got isn’t working. We should cut it back. We have plenty of money. We can figure. And they wanted to do that. And unfortunately, that drove off a of couple cliff. It took about a year and a half or so, but it was very uncomfortable. And had we had a board that was a proper board, meaning there was no bias towards one side or the other, then I would have felt comfortable with any vote the board had made. Yeah, because if you’re on a board where there is no power position, meaning you have an independent Who’s a swing vote and everybody respects the independent and you agree on who the independent will be. If you don’t like what the independent voted, that’s okay. You helped pick that independent and you made that decision. But it’s never comfortable to have a decision made where you didn’t really have any say. That’s a challenge. One of the best independent board members I ever worked with was a guy, he was only on the reputation board for about two years, a guy named Steve Cakebread, who, who had been the CFO of Salesforce and of Pandora. And we put him on the board because we wanted to beef up the financial acumen of the company and help hire a really strong internal cfo. And so we asked a very experienced public company multi time CFO to sit on the board and he was very helpful for the time he was there. He ended up leaving and going to YEXT as their full time cfo. And now the company went public and good for him, but it was really wonderful to have him on the board.

[00:30:49] David Hornik
Yeah, we’ve had great, great luck. Actually. It’s interesting. Graham Smith, who was a CFO at Salesforce, is an independent, was an independent on the Splunk board and he’s an amazing board member, really thoughtful and just a very good guy. So look, in the end, I think that the goal is this is the thing that’s that people confuse. They say, oh, you know, this independent is just to change the vote and whatever. No, actually let’s get someone who’s great, who can be helpful to the company. That’s my goal. My goal is figure out what the company needs. So oftentimes it’s like, oh, this is a first time CEO. Let’s find someone who’s been a CEO before. Give the founder help with that.

[00:31:35] Howard Hartenbaum
Or the company’s weak on sales. So you get a very experienced sales great salesperson. Somebody wouldn’t take the sales job yet for the company because the company is too small. But they’re happy to give partial time and sit on a board.

[00:31:46] David Hornik
Yeah, no, it’s really useful. So I have one company right now that I think is a very good candidate to be a public company next year. And now what you have to do is build the public company board. And the public company board is a little different. Right. You need it. It can’t just be a bunch of VCs. The public, public markets are.

[00:32:04] Howard Hartenbaum
It shouldn’t just be a bunch of VCs.

[00:32:06] David Hornik
No, they’re like, oh man, David, that’s what you got. Like, how is that helpful. So you need to bring in people like Graham or Cakebread, who are these great, thoughtful financial leaders. You need to have better experience, a broader set of experiences. It makes sense to have a broader range of sexes and races and ethnicities. I just think all those things, frankly, we should have those in our boards. Well, sooner than when the companies go public. But you know what? What we need in a public company board is what we need in all boards, which is a. A very thoughtful set of people who can give. Create value at the board level. Right. And there’s a sense that the board is not. Not helpful. Right. That the board is this controlling thing. And yet in my most, most successful companies, it’s always been the case that board members are great. They’re like really valuable, helpful, busy trying to make the company successful. And I think if everybody looked at it that way, then you’d be more supportive of bringing in great people onto the board.

[00:33:15] Howard Hartenbaum
One measure of a young company that has very young founders is every now and then you’ll see one where they manage to recruit somebody to the board that you can’t believe they were able to recruit.

[00:33:26] David Hornik
True.

[00:33:26] Howard Hartenbaum
Right. Like, I was talking to a company recently and he said, yes, and one of my board members is the former CEO of Raytheon. And I’m like, how are you related to him? And he said, I’m not. I’m like, how did you meet him? One of my professors introduced me. And I’m like, I don’t know how you got that guy, but that’s a good sign for you.

[00:33:43] David Hornik
Yeah, you’re right. The right person. No, I was. Same thing. Like when we funded Second Spectrum, this sports data company, the former CEO of ESPN was going on the board. It was like, well, wow, that’s amazing.

[00:33:57] Howard Hartenbaum
Was going. Did he actually go?

[00:33:59] David Hornik
He did. He’s a great board member.

[00:34:01] Howard Hartenbaum
He made it sound like the past.

[00:34:02] David Hornik
No, not at all. Actually, the board are the founders. This head of. This former head of espn, who’s an amazing guy and one of the owners of the warriors. And me, I. I think that makes me. That makes me the basketball.

[00:34:17] Howard Hartenbaum
Which one of these is not like the other.

[00:34:20] David Hornik
Yeah, exactly. David, what sport are you an expert in? Well, you know, I think. But I think these boards matter. I think that it can. I think that their boards can be productive and they can be destructive. And I think that we work really hard to try and be productive and helpful, not. Not to take away value. I hope. Hopefully that’s what happens. We’ll see.

[00:34:44] Howard Hartenbaum
Got any more topics?

[00:34:46] David Hornik
I don’t know. That seems. That seems like enough. Who knows if this phone even recorded this podcast?

[00:34:51] Howard Hartenbaum
We’ll find out shortly.

[00:34:52] David Hornik
Well, all right. This has been David Hornik via the. The voice memos on the iPhone.

[00:34:59] Howard Hartenbaum
Wait, how did we record that one in the Uber A long time ago.

[00:35:02] David Hornik
I think we brought a. I think we brought the whole record. Did we bring the deck?

[00:35:06] Howard Hartenbaum
We must have brought.

[00:35:07] David Hornik
I think we brought the whole thing. And we recorded in the back. And that was horrible. It would have been better to do it on an iPhone. It was so noisy. But it was fun.

[00:35:15] Howard Hartenbaum
Next time.

[00:35:16] David Hornik
Next time.

[00:35:16] Howard Hartenbaum
Anyway. And this is Howard Hartenbaum, also of.

[00:35:18] David Hornik
August Capital, and this has been Venturecast. So thank you for listening, and let’s hope this worked. It’s still recording.